International Analysis: Obesity as a Market Failure

By Roberto De Vogli —The Mark News

The obesity epidemic is out of control. Since 1980, obesity rates have tripled in most countries, and there are now almost two billion overweight individuals in the world. Policy recipes to fix the problem abound. More education, fewer cars. More bicycles, less TV. The list goes on and on. So far, though, public-health interventions have failed spectacularly. But why?

Although the rise of obesity is often described as an effect of specific individual and lifestyle choices, the problem is largely a byproduct of deeper political and economic changes in society.

In a recent study published in the Bulletin of the World Health Organization, a group of researchers, led by myself, found that, when compared with more protected economies, countries adopting more aggressive deregulation policies experienced faster increases in body mass index and consumption of fast food and soft drinks. After taking into account alternative explanations and competing risk factors, we concluded unequivocally that the freer an economy is, the fatter its people are.

How does an unregulated market relate to the rise of obesity? Through market concentration and the rise of food oligopolies that flood markets with cheap, unhealthy, ultra-processed products, in addition to fast food and soft drinks.

It may seem paradoxical, but unfettered market competition tends to naturally degenerate into market oligopolies. This happens because, in a market without rules, the winners of a competition find it more profitable and rational to suppress the very competition that made them win. This often translates into a gradual decline of smaller economic actors, which are pushed out of business or “swallowed up” through mergers and acquisitions, or what can be called “corporate cannibalism.”

This is more or less what happened in the food and agricultural sectors beginning in the 1980s, at the beginning of the so-called “deregulation revolution.” It is exactly during this period that worldwide dietary patterns dramatically changed toward ultra-processed products.

The rise and consolidation of food chains, and the decline of local food systems and small farms, was first felt in the very country that led the “deregulation crusade”: the United States. But as the old saying goes, “When the United States sneezes, the world catches a cold.” Deregulation went global and ultra-processed products crossed national borders one after another.

As food systems became increasingly dominated by ultra-processed products, fast food, and soft drinks, food oligopolies made enormous profits and acquired the power to set prices at will and determine the terms and conditions of their market sectors. Large food corporations became very active politically, and lobbied against regulations designed to safeguard public health and protect small farms.

“Foodopolies” have also aggressively invested in food advertisements shaping preferences and tastes, especially of young customers. It has been estimated that 96 percent of American schoolchildren can identify Ronald McDonald, and that the only fictional character with more recognition is Santa Claus.

So, what needs to be done to stop obesity?

A good way to start would be to introduce an “ultra-processed food tax” on unhealthy products such as fast food, snacks, and soft drinks. Corporate libertarians may consider taxation an unfair intrusion in market affairs, but even Adam Smith supported a sugar tax. In The Wealth of Nations (1776), he wrote, “Sugar, rum, and tobacco, are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are, therefore, extremely proper subjects of taxation.”

Revenues from an ultra-processed food tax could be used to subsidize fruits and vegetables and small farms growing fresh and healthy products. According to our study, Switzerland has experienced the slowest increases in body mass index and fast-food consumption per capita. It is no coincidence that most Swiss farmers are small producers, and that almost 60 percent of their income comes from government subsidies.

We also need reforms to discourage large-scale industrial agriculture that uses excessive amounts of fertilizers, pesticides, chemicals, growth hormones, and antibiotics, and it is crucial that we enact tighter regulations on packaging and labeling of food items and advertising of unhealthy products, especially for children. But perhaps the most important reform is the adoption of anti-trust laws to reduce market concentration in the food and agricultural sectors.

Of course, all these regulations can hardly occur without deeper, more systematic changes in the political economy. Since the beginning of the “deregulation revolution,” global and national economic policies have been increasingly affected by the ideology of the “self-correcting market.” But as the 2008 economic crisis showed, this ideology is awfully inadequate. As American economist Arthur Okun once observed, “the market needs a place, but the market needs to be kept in its place.” Governments need to take steps to regulate the market system’s built-in tendency toward consolidation and externalities.

Obesity is an example of market failure. As long as the food and agricultural sectors continue to be dominated by the ideology of “small government and big business,” our chances of winning the obesity war remain slim.

Roberto De Vogli is an Associate Professor in the Department of Public Health Sciences at the University of California, Davis. He led a study published by the World Health Organization (WHO) that explores the relationship between obesity and market deregulation.

 

 

 

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